Economics, Political Economy, Christian Life

US Taxation and Overseas Activity

The USA is more aggressive than almost all other nations with regard to taxing its citizens who live or do business overseas. This post will discuss two areas: the corporate tax and the rules for individuals living overseas (from personal experience).

Corporate Tax

The USA is unusual in two ways with regard to corporate taxes.

The corporate tax rate (35%) if very high, among the highest in the world. When including state and local income taxes, the US might have the highest rate in the developed world. This encourages companies to locate their headquarters and development and manufacturing in other countries.

The USA requires that US based corporations pay tax on income derived in foreign countries. In other words, if a US based company has a manufacturing plant in say, France, and sells in France, then the company is required to pay tax on what they earn on those operations. The US company only pays tax on such foreign income if they bring the money back to the US. This has a perverse incentive in that companies are encouraged to keep their foreign earnings in other nations to invest in new operations or buy other companies rather than bringing the money to the US to pay dividends to stockholders or invest in the US (thus creating jobs and more US taxes in the US).

Even worse, this situation is creating a perverse incentive for US companies to move their headquarters to other countries so that they escape this situation.

Personal Tax

The US requires US citizens working in a foreign country to pay tax on their income in that country. However, for many nations with which the US has “tax treaties”, if the US citizen pays tax in the foreign country, then that serves as a credit against US taxes. Also, only income over $75,000 US dollars (last I knew, may have changed) is subject to US tax. This last provision is meant to simplify tax returns for modest income earners.

So how does this work in practice? Consider two very different cases.

If an American citizen works in Australia, they pay Australian income tax. Since Australian income tax rates are generally higher than in the US (because their federal income tax, social security tax and state income tax are effectively all included in the federal income tax), their tax credit for paying the foreign tax is more than the computed tax to the US so they own nothing. The US citizen, must, however file a US tax return which can be quite complicated.

If an American citizen works in Saudi Arabia, which has no income tax, then they will need to pay US income tax. While this makes a certain amount of sense, since as US citizens, they still enjoy the benefits of citizenship, it does put them at competitive disadvantage to citizens of nations which do not do this. What this means that if a company wants to hire someone to work in Saudi Arabia, they will find citizens of other nations much more eager to do so than Americans due to the tax advantages.

The strangest part of being a US citizen is that if one holds assets above a modest amount in a foreign nation, these must be reported. Prior to several years ago, the requirement was to file a strange form which was mailed to an address in Detroit, Michigan. It was not filed with one’s tax forms. Then the law changed to provide draconian penalties (thousands of dollars in fines and prison) if a US citizen failed to report foreign assets on a new tax form (1040 form 8938). The old form (sent to Detroit) did not go away; however, it has changed from a mailed in form to a website (called “fbar”). The two forms have essentially the exact same information.

With the new form 8938 came US efforts to strong arm foreign banks to report to the US government on any accounts held by US citizens. They did this by threatening to cut off a non-cooperating bank from US payment systems. This sort of imperialism was not popular in many foreign nations!

As a US citizen living in the US, if one has, for example, a simple savings account in a foreign bank, one must, of course, report the interest income on the normal form 1040 schedule B. This is in addition to the 8938 and “fbar” forms!

To be fair, I must note one unusual benefit of the US approach to citizens working in a foreign nation. If that citizen has children, then they are eligible for the so-called “kiddie tax” credit. This is a “fully refundable credit” (i.e. a welfare benefit – you get it whether you have tax to credit it against or not). Therefore, even if the US citizen does not have taxes against which to credit the “kiddie tax credit”, they get the amount as a payment. Therefore, for example, a US citizen living in a foreign nation whose income is below the threshold will receive a check for the full amount of the “kiddie tax credit” from the US government! This still requires a fairly complicated returns at times, but they do get money from the US government!

Summary

The USA seems to have a somewhat imperialistic approach to tax policy regarding its companies and citizens living and working overseas. For companies, US policy provides perverse incentives which can be destructive to the US economy. For most individuals, the effects are primarily an inconvenience (with the threat of big penalties if one makes a mistake).

“Comprehensive” Immigration Reform

There is general agreement that the current US immigration laws and enforcement systems need to be changed. However, the debate is very clouded by a combination of extreme positions (though honestly believed and stated) and disingenuous positions. For example:

Extreme position of opposing immigration in general. This is extreme in light of both history and the realities of the modern world.

Disingenuous statement of proposing “comprehensive” reform while actually meaning total amnesty for all who have (or will in some cases) enter the country contrary to law.

Extreme position of the Obama administration of choosing to selectively not enforce current law. This generates a lack of trust that any new laws will have all their provisions enforced rather than just the ones which the administration favors (i.e. amnesty).

Extreme position that everyone (no matter how long ago) who has entered contrary to law should be deported. The sheer numbers make this impractical, and the integration into the US of many such migrants makes it inhumane.

In my experience perhaps the worst aspect of current law and enforcement is the practical experience that people who attempt to immigrate honestly, according to law are treated harshly by the bureaucracy and experience harsh interpretations of requirements and unresponsive offices. However, those entering contrary to law are treated with respect and ever increasing benefits of legal residency.

Current law has many absurdities. For example, under current law, for a US employer to gain a resident visa for someone to meet a critical skill shortfall, under the law, they must claim that they have not been able to find a person anywhere in the US to meet the need. Thus companies are forced to lie. A more reasonable requirement would be to demonstrate that normal, reasonable, hiring efforts have failed.

The term “comprehensive immigration reform” usually means a set of changes to current law to:

Satisfy the concern over open, unenforced borders.

Allow more legal immigration where appropriate in order to meet US needs and encourage potential immigrants to seek legal immigration rather than illegal.

Provide a humanitarian solution to the question of the status of a large number of people who immigrated illegally, but who have been here so long that deportation is neither practical nor humane.

Find ways to encourage legal immigration rather than illegal.

Some Modest Proposals

I make some modest proposals. In general the Congress is not considering any of these because of the dominance of extreme and disingenuous positions. I do not claim that these proposals are perfect or that they do not have obvious, severe loopholes or unintended consequences. Sadly, the debate required to avoid such problems is not happening in Washington due to the dominance of extreme and disingenuous positions. Nonetheless, here are my modest proposals:

Eliminate our century old quota system in favor of a points system in which a potential migrant must demonstrate points in social and economic areas. Social points come from criteria such as:

English proficiency.

Lack of criminal record.

Literacy.

Health.

Stable family.

Support structure (family or other connections in the US).

Economic points come from criteria such as:

Critical skills.

Pre-arranged employment (not as important as skills since a pre-arranged job can terminate at any time).

Employment history.

Financial assets.

Expand/ease the rules for investment/skilled immigration. This means allowing more immigration of people who have the financial resources and skills to start businesses.

Clarified requirements for citizenship so that English proficiency is ensured.

Elimination of all non-English ballots in elections. This is based on the theory that a person who does not know English is unlikely to be an informed voter but rather is open to manipulation by others.

Eliminate “anchor babies” – the policy that declares anyone born in the US as a citizen. The USA is unique among major nations which has such a policy. It encourages people to enter the US illegally to have children born here. The constitution says “All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.” The clause “subject to the jurisdiction thereof” was meant to exclude diplomats and tourists. People who enter contrary to law are clearly not being subject to US jurisdiction.

To deal with people who have entered the US illegally, but in many cases correctly saw that enforcement was so lax as to question the sincerity of the law, do the following:

All who have committed felonies are subject to immediate deportation.

For those in the US less than a period of time (1 year?), allow a short window (3 months?) in which to register. Those who register are given another window (3 months?) in which to return to their countries. Those found who don’t register will be immediately and mercilessly deported.

For those in the US in an intermediate period of time (1-3 years?), and who are deemed gainfully employed and integrating into the US, treat them as long term immigrants. For others, treat them as short term immigrants according to the prior section.

For long term illegal immigrants (over 3 years?), provide a window (6 months?) in which to register. Those found after this period who have not registered are subject to immediate, merciless deportation. Those who register are granted a new category of residency in which they are like all other legal residents with one exception. They can never vote. They can go through citizenship requirements and gain a US passport, but cannot register to vote. It is up to states to check the federal database of naturalized citizens to verify eligibility. For most migrants, this is a very minor penalty for having entered illegally. Most came to make a better life and will be happy to gain a stable US residency status. This policy also disarms the argument that the only motive for “amnesty” is stacking voter rolls with Democratic Party voters rather than a humanitarian motive.

Provide a framework for the State Department to forge agreements with countries of origin for defined deportation and reentry.

Enhance border security. This is listed last because the hope is that the prior proposals will make it easier. I don’t have any new ideas for how to enhance the security.

Finally, in the debate over immigration, it is critical that everyone realize that no matter what new law and policy is made, there will be people who get what seems to be a very bad deal. The challenge is to minimize such cases, but it is impossible to eliminate cases where particular circumstances cause unfair hardship. The challenge is to focus debate on how new law and policy affects large numbers of people. Unfortunately, our media/superstar culture makes this difficult because it will focus on a very small number of “hard cases” rather than the very large number of normal cases.

Technology for the Federal Government

This blog post is not about how federal departments can use technology for their work, but rather how the very process of government itself can be transformed using modern technology. Our system of governance including fundamentals such as election methods and the money supply are basically 19th century (or 18th) models only slightly adapted. Perhaps we can say that one government core function, defence, has done better in using technology.

This post considers two specific ideas for using modern technology to transform key aspects of the federal government.

I. Congress

In our republic, congressmen and women are meant to represent certain districts. Senators are to represent states. However, as congress has changed from a body which met for brief periods each year to a nearly full time body, this has meant that the members nearly all move to the Washington D.C. area even if they maintain homes in their home states and districts. This has several perverse effects:

Members of congress are more assessable to lobbyists than to constituents.

Members of congress spend far more time socially with each other than with constituents.

Members are more in tune to the needs of federal bureaucracy than to either national interests or their districts/states because they live among all the people who work in the D.C. area.

The proposal is to use technology to make all meetings of congress remote. We have the technology to have a meeting room in each district/state when members go for meetings, whether committee meetings or general sessions. Large screens, with 3D if necessary, and with wrap around if desired could provide very adequate facilities for debate, discussion, interviewing (i.e. hearings) and voting. All voting would be electronic so there were never be any question of who voted yea or nea on any vote.

With this simple proposal, members would now live among their constituents, not each other, lobbyists and the federal bureaucracy. This could become a lobbyist nightmare – having to cover 435 house districts and 100 senators, all in different places.

Furthermore, such a system may encourage high quality men and women to run for office knowing that they would not have to uproot their families and move to the D.C. area.

II. The Monetary System

Our current monetary system is rooted in very low technology systems. Money has changed since the start of the republic with the widespread use of fiat currency and the Federal Reserve System.

One competitor to government currency today is the virtual currency Bit Coin. I propose that the US government create its own virtual currency using technology similar to Bit Coin. I would suggest that this should be instituted via constitutional amendment because a key feature of such a virtual currency is that the amount of the currency being created is known and fixed. By putting this in the constitution, inflating the currency by simply creating more would require a constitutional amendment which requires great consensus.

There are two great challenges to this use of technology:

Transition from the current dollar.

How to implement cash.

For transition, I would propose allowing a free market for trading from dollars to the new currency. However, there would be a “drop dead” date for the current dollar. On that date, anyone could convert remaining dollars to the new currency at a rate which is computed based on the historical exchange rate of the two currencies with a built in penalty for being late so as to encourage everyone to do the exchange. After this date, old dollars (including cash) are not valid US currency.

To provide cash, the government can coin/print money that can be used in place of the virtual currency. However, all such cash is part of the total supply of the virtual currency, not in addition to it. I would suggest that the cash be of two forms:

Larger amounts (e.g. $20 or more equivalent?). The “cash” would be an electronic token with unique serial number whose movement is tracked. This destroys the counterfeiting industry, a major source of criminal revenue and rogue state revenue (e.g. North Korea).

Smaller amounts would be metal coins whose metals tend to be worth nearly their equivalent value thus making counterfeiting of them of little profit.

Summary

Both of these proposals are intended to cause readers to think. Each certainly has potential flaws and would require extensive debate and thought to hammer out the details. However, I believe that we are foolish to persist with outmoded technologies in government when we see so many other areas of life enhanced by technology.

Why is Congress Yielding Power to the Executive

February 27, 2014

There has been a lot of discussion in the news lately about the movement of power to the executive branch of the federal government. The testimony of Jonathan Turley brought wide public awareness to the question.

Of course, the founders wrote a constitution with three branches of government knowing that men tend to seek to expand their own power and the the branches would be likely to continue to check the expansion of the power of the other branches.

I have heard it asked why Congress has so easily yielded its own power to the executive branch? I have one possible answer. While the job of the congress as a body is to legislate, provide advise and consent to appointments, declare war and so forth, the job of an individual representative or senator is quite different. Given what individuals spend their time doing, we can say that their actual job is fund raising. Then we must only ask the question, “does yielding power to the executive branch hurt fund raising efforts?” Apparently the answer is “No”.

In fact, I would make the case that perhaps, at least in the short term, abdicating power to the executive branch might enhance fund raising efforts because it can provide opportunity to write fund raising letters complaining about the executive branch (if one is in the opposition party) or use the abdication to distance oneself from unpopular and ineffective government actions (if one is in the party in power).

The Death of the Secret Ballot

This blog post examines how recent changes to voting methods in the US have compromised the secret ballot!

Secret Ballots

By 1892, US elections were generally held using the secret ballot. This was sometimes called the Australian Ballot because Australia is credited with being the first place where secret ballots were in widespread use (even though the concept exists in other historical contexts).

A secret ballot is usually defined with these traits:

There is an official printed ballot. Prior to 1892, some states and localities used oral ballots. The ballot is printed by the government.

The ballot contains the names of the candidates and proposals. Many states and localities also have provisions for writing in a candidate’s name. The rules vary widely.

An official ballot is available only at the polling place. This means that a person or organization cannot obtain large numbers of official ballots for people to carry into polling places and “stuff” into the ballot box. Many Americans will note that newspapers publish sample ballots and election websites have sample ballots. But these are always identified as sample.

The ballot is marked in secret, that is, no one watches the person marking the ballot. As technology has advanced, we have expanded this concept to mean that there is no way to tie a particular ballot to an individual voter.

While not a trait specifically of the secret ballot, this methodology provides that everyone votes within a very narrow time window, usually all on the same day. This ensures that all voters vote using the same information.

A couple of things should be noted about secret ballot implementation:

Our methods are not perfect, but in practice have worked quite well. For example, since we publish counts of votes by precincts, if only one person shows up to vote in a precinct, that citizen’s vote is known to everyone.

It is very challenging to develop methods of implementing secret ballots which also allow for auditability, that is, the ability to verify that the votes have not been altered or that false votes have not been introduced. With high-tech voting means, such as computers, this conflict has intensified. The computer science academic community was nearly unanimous in its opposite to computerized voting machines for this reason.

Secret ballots pose special challenges for people who cannot see or do not have the physical ability to mark a ballot.

When voters speak different languages, then ballot production is complicated. In a nation with a dominant language in its politics, government, and business like the USA, it is reasonable to ask whether anyone who does not know English can be enough in touch with the issues to vote, but that is a big topic for another day.

Some voters might not be available to come to the polling place on election day (or days, although that is not used in the US). They might be in the hospital, be away for business or vacation, or be incapacitated. Until recently, this problem was met by the use of an “absentee” ballot. A voter could apply ahead of time for an absentee ballot and was required to state a legitimate reason for using it. The ballot was mailed to the voter and the voter mailed it back to the board of elections. Clearly, a person with such a ballot could be subject to intimidation since another party might be watching them fill out the ballot, but since the numbers of absentee ballots were quite small, this was never considered to be a problem. Generally, when a voter requested an absentee ballot, their name was noted on the voter rolls and they were not permitted to vote at the polling place. If they failed to send in their absentee ballot, they could not vote.

Why Do We Want Secret Ballots

Without secret ballots, voters can be subject to pressure from many sources. For example, an employer might threaten to terminate an employee if he does vote as directed. Thugs at polling places could intimidate voters threatening physical harm if they voted a certain way. Social intimidation from friends could occur. In fact, all of these problems existed prior to the use of secret ballot and were among the reasons for adopting the secret ballot.

What Has Happened

Since 2000, many changed have occurred in voting in the USA. On change has been the use of computerized voting machines, in spite of warnings from technical experts that they are not safe from tampering. Unfortunately, due to the nature of some kinds of tampering, we have no way to know if such tampering has occurred, which is a serious question.

Another major change has been the introduction of universal mail-in voting, such as used in the state of Washington, and more broadly, the use of early voting. With early voting, the methodology of absentee ballots has been extended to everyone without having to state a reason. Early voting can occur in multiple ways and can differ state to state:

A voter goes to the board of elections and fills out a ballot.

A voter requests an early ballot by mail and mails it in.

Ballots are provided to voters by other citizens, for example, to people living in nursing homes, for them to fill out and have mailed in. When this procedure is allowed, there is no tracking available for who has an early voting ballot in his/her hands.

With early voting, such votes must be turned in some days before the general election so that the voter rolls can be marked to note which voters have voted using early voting so that they cannot also vote at the polling place.

Before we note how these procedures are the death of the secret ballot, note that widespread early voting also violates the principle of all (or nearly all) votes being cast in a narrow time window, and thus based on the same information.

Early voting violates at least two of the four principles of the secret ballot.

Principle 3, that official ballots are distributed only at the polling place, is clearly violated. Technically absentee ballots violated this principle, but first there were few such ballots and second careful records were kept of who got an absentee ballot. This means that ballots were not generally available and subject to abuse.

Principle 4, that ballots are marked in secret, is violated. This is because a person or group intent on intimidation may demand that people subject to them (e.g. employees, gang members) fill out an early voting ballot in their presence. It is this critical problem that truly ends the secret ballot in America!

Furthermore, early voting enables a partisan group, even a political party itself, to seek out incompetent, or semi-competent voters and “help” them fill out ballots (i.e. fill out ballots for the person). At a polling place, rules are in place to assist those with restrictions such as blindness or physical limitations on writing, but the voter still must be able to select their choices by themselves. No such procedures can be enforced with mass early voting.

Conclusion

Voting procedures have been subject to many abuses in American history. I do not argue that our recent changes in procedure are the first time abuses have been possible or used. However, it seems very tragic that we have allowed such an important bedrock of citizen choice as the secret ballot to be so quickly compromised in the name of convenience. The absentee ballot system worked well for decades for voters who truly cared that their votes counted.

How Republicans Lose Every Debate – Even with Themselves

There have been many discussions of “how the Republicans lost the 2012 presidential election”. While I don’t claim to know the reason, I do know that debates hindered their cause.

In fact, I make the case that the Republicans lost debates, even when they debated each other – during the primaries!

Here is why:

Primary Debates

There were two serious errors made during the primary debates. The first error made the second one much worse.

They hired Democrats from the media to moderate the debates. Therefore:

Questions were on topics which put Republicans in a bad light.

The questions were always framed in the way Democrats look at issues (e.g. a question on the environment would frame it as “harm to the environment”, not in terms of “cost/benefit trade-off”.)

The questioners could ask questions solely for the purpose of getting Republicans on record saying things that could be used against them in the general election campaign.

The Republican approach would be the equivalent have the Democrats asking Rush Limbaugh or Sean Hannity to moderate their primary debates. Can you imagine them being that stupid?

The Republicans decided to make the primaries a battle of who could say the worst things about each other. This, of course, provided no help to the candidate in the general election and instead provided fodder for the Democratic opponent’s campaign.

Amazingly, after primaries in which Republicans savaged each other, the party then choose to say nothing negative about Mr. Obama in the general election!

Perhaps, the debates should have been an attempt by each candidate to show that he/she was the most capable of arguing against the president and his policies. There was no reason to mention other Republicans – let the voters decide who best demonstrates they are ready to take on Mr. Obama!

Of course, this second error is amplified by the first – Democratic moderators are all too willing to encourage Republicans to tear each other to pieces.

General Election Debate

Year after year, Republicans fall for the trap of having Democratic voting media people moderate debates. In 2012, in the first debate, the moderator Jim Lehrer took an unusual approach and let the candidates speak at length. Thus the debate was driven by the candidates and not the moderator. Mr. Romney experienced a significant poll “bump” after this debate.

But in other debates, especially the one moderated by Candy Crowley of CNN, the moderator controlled the debate more carefully.

The questions remains: why do Republicans continue to allow themselves to be in debates where the questions come from their opponent?

A Better Way

The method of selecting moderators assumes the myth that journalists are “impartial”. This is nonsense. They are thinking, feeling human beings who have very definite and usually well known opinions!

A better format which would also make the debates far more interesting would be:

There are two questioners, one appointed by each candidate.

Each candidate gets half of his/her questions from the “friendly” questioner and half from the opponent’s questioner.

This format would allow “softball” questions allowing the candidate to speak to his/her strengths and what they perceive as important issues. Plus it would allow the public to observe how well a candidate can speak to sharp, insightful criticism of their qualifications, actions, and policy proposals.

Biblical Giving – In Secret?

In the sermon on the mount, Jesus said than when we give alms, “Do not sound a trumpet before you.” So what follows is clearly intended to be a counter to a practice of giving for the sake of being seen and making a big production of it. And Jesus’s antidote seems to be figurative “so do not let your left hand know what your right hand is doing” – figurative because our hands don’t “know” and in the literal, we seem to know what each hand is doing.

He does not condemn the sounding the trumpet to announce giving, only saying that they have their reward in full just then. Nonetheless, He is telling us the better way – let your alms be in secret.

When we give to an organization, it can be difficult to impossible to give in secret. One can argue that cash in the mail with no return address is poor stewardship! So working within the way organizations operate, we give via cheque or credit card with our name attached. While this is not “secret” is some absolute sense, it is a long ways from announcing to all your friends and neighbors (the trumpet) that you are giving. Furthermore, when donations are tax-deductible, we find ourselves in the position of being poor stewards if we don’t take such deductions. In my opinion, to not report tax-deductible donations in order to give “in secret” is mis-guided. First, putting numbers of tax forms is hardly going through the streets with a trumpet. A human may barely see the numbers, let alone connect them to a person they know. And by not deducting, we actually reduce the amount we can give.

In a marriage, I think things become more interesting since in marriage we are to be “one flesh”. I believe there is a place for married people to agree to each have a “giving” amount to be given secretly – although I would reserve this for personal gifts where secrecy has meaning. Giving to organizations (as noted above) carries some institutional baggage. Remember the organization itself must keep track of its donations etc. So in a “pure” sense, giving is seldom truly “secret”, but I believe is very much “secret” in the contrast Jesus makes with sounding a trumpet before you!

In my opinion, disunity in marriage is more important than secrecy in giving. In giving, the worst Jesus says is that even when we “sound a trumpet before us”, all that happens is we get our reward in full right now, not from our Father in secret. But in marriage, Peter tells us that to not live with our wives in an understanding way is related to our prayers being hindered! Because of the power of united prayer, I believe God’s BEST is for married people to agree (what stronger agreement than two who are one flesh) in giving and then rejoice in the Lord’s provision to be able to do so and pray that the Lord blesses the receivers of the gift!

Now I would like to further consider what Jesus was telling us. For in the same Sermon on the Mount, He told us to “let our light shine before men in such a way that they may see your good works, and glorify your Father who is in heaven.”

Now we know that Jesus was very much interested in our hearts, not our outward forms. He talked about worshiping in “Spirit and in truth”, not about how low to bow etc. He talked about lusting in our hearts. In thinking about the statement about not sounding a trumpet before us when we give alms, it makes sense that He is talking about MOTIVE. I don’t know if people then literally did this with a trumpet or He was making an extreme case to show the foolishness. In either case, especially because His statements about how to give in secret are figurative (left hand not knowing), I say He is talking about motives. Jesus never seemed very interested in forms, but in our hearts.

I think it is perfectly consistent to “let our light shine before men” without “sounding a trumpet before us” – sharing the life of Christ in cheerful giving – letting our light shine and thus glorifying God. If our heart is wanting to shine the glory of God, not shouting our “greatness”, we can rejoice in how He has taken our sinful nature and made it like His nature.

In fact, before He said to let our light shine, He said we are the light of the world and men do not light a lamp, and put it under a basket! From what I read of Roman history, this is all quite significant. Pagan Romans were known to be quite stingy – any charity was for selfish reasons and done with great fanfare (trumpets?). Those whose hearts are changed by Christ are quite different – motivated by love – this change was quite notable.

I get excited writing this when I see what a different world Jesus has for us when He has our hearts.